{"id":1099,"date":"2020-06-17T08:11:07","date_gmt":"2020-06-17T08:11:07","guid":{"rendered":"http:\/\/janbosch.com\/blog\/?p=1099"},"modified":"2020-06-17T08:11:15","modified_gmt":"2020-06-17T08:11:15","slug":"digital-for-real-business-model","status":"publish","type":"post","link":"https:\/\/janbosch.com\/blog\/index.php\/2020\/06\/17\/digital-for-real-business-model\/","title":{"rendered":"Digital for real: business model"},"content":{"rendered":"\n
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Photo by Slidebean on Unsplash<\/figcaption><\/figure>\n\n\n\n

Over the last months (actually, more like years), we\u2019ve studied the digital transformation of several companies in the Software Center<\/a>. Professor Helena Holmstr\u00f6m Olsson<\/a> and I developed a model to illustrate how they actually transition from their legacy business rooted in atoms to a digital business based on bits (see the figure). It has four dimensions: business model, data exploitation, product upgrade and AI\/ML\/DL. In this post, we\u2019re focusing on the business model dimension and show the overall model in the figure below.<\/p>\n\n\n\n

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Four dimensions of digital transformation<\/figcaption><\/figure>\n\n\n\n

Based on our research with several of the Software Center partners, \nwe identified that companies evolve through a similar pattern when it \ncomes to transforming their business model. Especially in the embedded \nsystems domain, the starting point is traditional product sales, eg a \ncar, a truck, a radar, a pump or a base station. We often refer to this \nas \u201cbox sales\u201d and the business model is highly transactional: I sell \nyou the box and I will then try to sell you a new box in a few years\u2019 \ntime. There may be some revenue generated from services, such as product\n maintenance, but this tends to be a small fraction.<\/p>\n\n\n\n

The next phase is where the product is offered as a service. Here, \nmostly the monetization of the physical product changes from a one-time \ntransaction to a continuous revenue stream. There are several challenges\n with this, including this requiring the company to, in effect, finance \nthe product for its customers, but it can be a very effective way to \ngrow revenue as customers that wouldn\u2019t have bought the product in the \ntraditional model as, for example, they don\u2019t need it full-time, may \nwell want to buy it as a service.<\/p>\n\n\n\n

As a next step, we see that companies start to develop all kinds of \nservices around the product. These services tend to surround the \noperation of the product and may range from offering accessories in a \nrental model to providing information and advisory services to improve \nefficiency or the quality of outcomes. In this phase, the product is \nused as a platform to generate more revenue from complementing services.<\/p>\n\n\n\n

In the fourth step, the monetization model changes again and becomes \nmore customer oriented. Rather than associating monetization with the \nproduct, it becomes associated with customer KPIs that can be influenced\n by the product. Examples of these customer KPIs include the number of \nsuccessful deliveries without delays, the reduction in end-customer \nchurn or the reaction time gained by earlier detection. In this case, \nthe company focuses on the factors that influence the customer\u2019s bottom \nline and links the business model to improving those factors.<\/p>\n\n\n\n

Finally, the company seeks to develop a second customer base where it\n can monetize the data generated and captured from its primary customer \nbase. For example, trucks have accelerometers that provide information \nabout the quality of roads (such as the presence of potholes) and \ngovernment functions responsible for road maintenance may be willing to \nbuy this information. The result is a two-sided market where the company\n still sells to its primary customer base but also monetizes the data \nfrom its primary customer base to its secondary customer base. Over \ntime, of course, the secondary customer base may become the more \nimportant one, which then fundamentally changes the incentives within \nthe company.<\/p>\n\n\n\n

Concluding, as part of your digital transformation, the business model that you employ will have to change and evolve as well. As we\u2019ve shown, this evolution follows a pattern and jumping over intermediate stages tends to lead to failure. Although our model focuses on the embedded systems domain, I believe that all industries evolve through similar or identical patterns. As you experiment with evolving your business model, the stages presented here may provide guidance on where to focus next. As always, we\u2019re eager to learn more about your experiences, so please reach out to us to share them.<\/p>\n\n\n\n

To get more insights earlier, sign up for my newsletter at <\/em>jan@janbosch.com<\/em><\/a> or follow me on<\/em> janbosch.com\/blog<\/em><\/a>, LinkedIn (<\/em>linkedin.com\/in\/janbosch<\/em><\/a>) or Twitter (<\/em>@JanBosch<\/em><\/a>).<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Over the last months (actually, more like years), we\u2019ve studied the digital transformation of several companies in the Software Center. Professor Helena Holmstr\u00f6m Olsson and I developed a model to illustrate how they actually transition from their legacy business rooted in atoms to a digital business based on bits (see the figure). It has four … Read more<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"generate_page_header":"","footnotes":""},"categories":[15,4,8,10],"tags":[],"_links":{"self":[{"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/1099"}],"collection":[{"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/comments?post=1099"}],"version-history":[{"count":1,"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/1099\/revisions"}],"predecessor-version":[{"id":1102,"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/1099\/revisions\/1102"}],"wp:attachment":[{"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/media?parent=1099"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/categories?post=1099"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/tags?post=1099"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}